Marina Bay with Suntec City and National Stadium and Kallang in the background.

9/25/2011

Gambling Divisions in banks

Kweku Adoboli may not have gambled away UBS but is currently the most famous bank employees after Nick Leeson and Jerome Kerviel of Societe Generale’s fame. The latter lost US7b while Leeson in a way gambled away a bank. Some may dispute calling them bank employees as they are employed by a different division of the banks, involved in gambling. Oops, they don’t call it gambling, but trading and traders.

The banks have evolved over the last few decades into the biggest gamblers of all time. They set up big divisions, run independently, as an investment arm of the banks. They could also be full investment banks as stand alone operations. Hiding behind banking terminologies like asset management, wealth management, private banking, or whatever, their key function is gambling with clients money.

They placed bets in all kind of things, including arts, wines, and anything that is collectible and has a value. Adoboli, Kerviel and Leeson were just traders, and the closest to pure gambling. A Korean banker was reported to have jumped off his window when his bank was under investigation for trading violations. It is a worldwide phenomenon. Whatever nice terms they used, it boils down basically to gambling with high stakes, and getting riskier.

To stop the disguises and the deception, banks should simply set up gambling divisions and head straight to the casinos. It will be faster, cleaner and less trickery. Just place money on the table and it is either win or lose. The only problem is that they are not allowed to take advantage of the game by using high speed computers. The casinos are not stupid. There are some regulations in the gambling industry that do not allow unfair practices or cheating. And high speed computers and programme tradings will definitely be banned from the casinos.

The banks still have a huge advantage in having a big war chest. They only need to steam roll with their money in games that have better odds, like black or red in the roulette table. No need to acquire special skills about reading people’s faces in poker or black jack. Oh, poker is also a game that big money has a huge advantage and the banks can definitely give it a try.

In the game of roulette, the bank’s gamblers, I mean traders, can simply put his bets in red or black. He could simply double his bets on, say red, until red turns up. It is a sure win strategy given the near unlimited funds at the banks disposal. Red must come after a few rounds, or a few tens of round. Just keep doubling until it comes. No need expensive and sophisticated high speed computers or elaborated graphs, charts and systems. Yes, just place the bets on red or black and doubling until the next win.

Maybe calling it a gambling division will upset the morally righteous and correct people. Give it another fanciful name and just go and place the bets. At worst it is losing the bank. The CEO only needs to step down. The severance pay is quite good too. This is how advanced and sophisticated the banks have become.

And thanks for the confirmation. Actually all the big funds are doing the same. What is problematic is that banks cannot fail as many people's money are in the bank. It is better for banks to remain the solid pillars of a country's financial system than to have them gambling like all gamblers, in a big way.

The Americans have set the example and they are paying for it. For the time being, they are using their financial muscles to wipe out the greedy emerging markets who think that the American funds are Santa Claus.

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